Eurex targets hedge funds in next phase of Euribor push

Eurex plans to appeal directly to high volume interest rate trading clients such as hedge funds to build on the solid start the German exchange has made with its new European interest rate contract.

The Frankfurt-based exchange, which relaunched its Euribor contract on November 1, said trading volumes have ticked up this month to a record 110,000 lots early this week.

Speaking at a Deutsche Boerse event on Tuesday, Mathias Graulich, member of the Executive Board of Eurex Clearing, said: “If you look at the trajectory since November 1, we started out with zero on the first day and it has climbed step-by-step so last week we had on average 5% market share and on November 20 a 10% market share which is a very promising start.”

Graulich said the new Euribor contract is now backed by 12 liquidity providers and 20 banks which have helped drive trading turnover while open interest is around 5,000 lots.

He said: “The next important step is to get the price-takers active so we are discussing with a number of end-users of the Euribor futures to feel comfortable with the liquidity and then take advantage of our unique value proposition like cross product margining between Euribor and Schatz Futures.”

Eurex, which is the main venue for longer-dated European interest rate products such as the Bund and the Schatz, sees the short-dated Euribor contract as key to the exchange’s bid to become the home of the Euro yield curve.

Eurex wants to attract Euro short-term interest rates derivatives from Intercontinental Exchange and Euro swaps from LCH with the promise of margin offsets from clearing the highly correlated short and long-term derivatives alongside the swaps under one roof.

Graulich said the Eurex initiative is timed to benefit from a regulatory tailwind in Europe where authorities are working to secure greater control over the Euro-denominated interest rate derivatives market.

“Separately, we are observing closely developments in Brussels around the active account requirements and what the requirement for Euribor futures will look like. From our side, the objective is to allow people to fulfil such a potential requirement with an attractive EU based solution.”

The European Commission is trying to secure agreement from member states for its plan to require European banks and asset managers to hold an “active account” with a European clearing house like Eurex’s.

Graulich said in March the Commission’s active account proposal is a “neat compromise” to the intractable problem that most Euro swaps are still cleared with LCH in London.

Eurex announced in November last year a Euro clearing incentive scheme that rewarded new active accounts in over-the-counter interest rate swaps, overnight index swaps, basis swaps or zero coupon inflation swaps for the calendar year 2023.